Deferred inflows of resources Deferred gain on debt refunding 11,668 12,578

Transcription

1 Shands Teaching Hospital and Clinics, Inc. and Subsidiaries Consolidated Basic Statements of Net Position (Unaudited) As of June 30, 2014 and 2013 (Amounts in Thousands) Assets Current assets Cash and cash equivalents $ 14,494 $ 31,525 Short-term investments 122, ,981 Patient accounts receivable, net of allowance for uncollectibles of $51,574 and $47,312, respectively 185, ,959 Inventories 12,938 12,659 Prepaid expenses and other current assets 53,046 50,031 Assets whose use is restricted, current portion 26,340 46,733 Total current assets 414, ,888 Assets whose use is restricted, less current portion 325, ,359 Capital assets, net 728, ,648 Other assets 222, ,281 Total assets 1,691,401 1,651,176 Deferred outflows of resources Accumulated decrease in fair value of hedging derivatives 42,052 39,425 Deferred loss on debt refunding Total deferred outflows of resources 42,683 40,190 Liabilities Current liabilities Long-term debt, current portion 20,929 20,745 Capital lease obligations, current portion Accounts payable and accrued expenses 68,667 64,950 Accrued salaries and leave payable 47,306 43,896 Estimated third-party payor settlements 33,748 48,326 Total current liabilities 170, ,580 Long-term liabilities Long-term debt, less current portion 551, ,907 Capital lease obligations, less current portion 1, Other liabilities 61,607 57,126 Total long-term liabilities 614, ,534 Total liabilities 785, ,114 Deferred inflows of resources Deferred gain on debt refunding 11,668 12,578 Net position Net investment in capital assets 154, ,754 Restricted Nonexpendable Expendable 7,848 7,357 Unrestricted 774, ,466 Total net position $ 936,817 $ 870,674 1

2 Shands Teaching Hospital and Clinics, Inc. and Subsidiaries Consolidated Basic Statements of Revenues, Expenses and Changes in Net Position (Unaudited) For the Years Ended June 30, 2014 and 2013 (Amounts in Thousands) Operating revenues Net patient service revenue, net of provision for bad debts of $95,344 and $87,792 respectively $ 1,176,950 $ 1,143,193 Other operating revenue 22,343 17,043 Total operating revenues 1,199,293 1,160,236 Operating expenses Salaries and benefits 548, ,333 Supplies and services 512, ,110 Depreciation and amortization 54,479 49,358 Total operating expenses 1,115,721 1,041,801 Operating income 83, ,435 Nonoperating revenues (expenses) State appropriations 7,050 7,500 Interest expense (20,372) (17,045) Investment income, net 6,318 6,639 Realized gains on investments, net 27,059 5,001 Change in fair value of investments Change in fair value of derivative instruments 3,132 (3,455) (Loss)/gain on disposal of capital assets, net (344) 1,510 Other nonoperating revenues, net 3,907 6,008 Total nonoperating revenues, net 27,070 7,104 Excess of revenues over expenses before transfers, capital contributions, and other changes in net position 110, ,539 Transfers and expenditures in support of the University of Florida and its medical programs (45,412) (47,812) Other transfers, net - (6,100) Capital contributions Other changes in net position 492 (1,394) Increase in net position 66,143 71,178 Net position Beginning of year 870, ,496 End of year $ 936,817 $ 870,674 2

3 Shands Teaching Hospital and Clinics, Inc. and Subsidiaries Consolidated Basic Statements of Cash Flows (Unaudited) Years Ended June 30, 2014 and Cash flows from operating activities Cash received from patients and third-party payors $ 1,171,116 $ 1,112,322 Other receipts from operations 20,530 19,596 Salaries and benefits paid to employees (544,966) (500,812) Payments to suppliers and vendors (520,077) (494,551) Net cash provided by operating activities 126, ,555 Cash flows from noncapital financing activities Payments received on notes receivable 9,123 6,025 Payments in support of the University of Florida and its medical programs (47,791) (47,334) Other transfers, net (2,000) (3,500) Donations and pledge receipts 6,466 8,297 Net cash used in noncapital financing activities (34,202) (36,512) Cash flows from capital and related financing activities Purchase of capital assets (73,558) (62,881) Medical office building construction project - 18,302 Proceeds from sale of capital assets 3 1,510 Proceeds from issuance of long-term debt - 196,820 Payments of long-term debt and capital lease obligations (22,105) (91,205) Interest payments (21,763) (19,062) Capital contributions Other capital and related financing activtiies (1) 1,400 Net cash (used in) provided by capital and related financing activities (117,003) 45,829 Cash flows from investing activities Investment income received 4,612 4,843 Interest in joint venture (10,000) - Purchase of short-term investments and assets whose use is restricted (72,404) (218,614) Sale of short-term investments and assets whose use is restricted 86,667 74,619 Other investing activity (1,304) 745 Net cash provided by (used in) investing activities 7,571 (138,407) Net (decrease) increase in cash and cash equivalents (17,031) 7,465 Cash and cash equivalents Beginning of year 31,525 24,060 End of year $ 14,494 $ 31,525 Reconciliation of operating income to net cash provided by operating activities Operating income $ 83,572 $ 118,435 Adjustments to operating income to net cash provided by operating activities Depreciation and amortization 54,479 49,358 Provision for bad debts 95,344 87,792 Changes in: Patient accounts receivable (107,601) (110,491) Prepaid expenses and other current assets 3,892 14,044 Inventories (279) 75 Other assets (20,280) (10,883) Accounts payable and accrued expenses 7,297 (8,123) Accrued salaries and leave payable 3,410 4,232 Estimated third-party payor settlements 6,422 (8,173) Other liabilities Total adjustments 43,031 18,120 Net cash provided by operating activities $ 126,603 $ 136,555 Supplemental noncash investing, capital and financing activities Capital assets acquired through financing and capital leases $ 3,583 $ 669 3

4 Shands Teaching Hospital and Clinics, Inc. and Subsidiaries Consolidating Basic Statements of Net Position (Unaudited) June 30, 2014 (Amounts in Thousands) UF Health UF Health UF Health Total UF Health Total Shands Teaching Shands Shands Psychiatric Shands Rehab Alachua County Shands Property Obligated Hospital and Hospital Hospital Hospital Eliminations Hospital Group Homecare Management Eliminations Group Other Eliminations Clinics, Inc. Assets Current assets Cash and cash equivalents $ 7,774 $ 1 $ - $ - $ 7,775 $ - $ - $ - $ 7,775 $ 6,719 $ - $ 14,494 Short-term investments 122, , , ,222 Patient accounts receivable, net 175,457 4,578 3, ,780 1, , ,409 Inventories 12, , , ,938 Prepaid expenses and other current assets 51,259 1, (684) 52, , ,046 Assets whose use is restricted, current portion 26, , , ,340 Total current assets 395,951 5,981 3,946 (684) 405,194 2, ,207 7, ,449 Assets whose use is restricted, less current portion 325, , , ,909 Capital assets, net 711,367 8,870 1, , , ,128 1, ,652 Due from affiliated entities, net 5, , (6) 5,707 - (5,707) - Other assets 184,187 4,489 3, ,817 1, ,289 29, ,391 Total assets 1,623,127 19,340 8,951 (684) 1,650,733 3,525 4,987 (6) 1,659,240 37,868 (5,707) 1,691,401 Deferred outflows of resources Accumulated decrease in fair value of hedging derivatives 42, , , ,052 Deferred loss on debt refunding Total deferred outflows of resources 42, , , ,683 Liabilities Current liabilities Long-term debt, current portion 20, , , ,929 Capital lease obligations, current portion Accounts payable and accrued expenses 66, , , ,667 Accrued salaries and leave payable 47, , , ,306 Estimated third-party payor settlements 34, (684) 33, , ,748 Total current liabilities 168, (684) 169, , ,835 Long-term liabilities Long-term debt, less current portion 551, , , ,978 Capital lease obligations, less current portion 1, , , ,179 Due to affiliated entities, net (6) - 5,707 (5,707) - Other liabilities 61, , , ,607 Total long-term liabilities 614, , (6) 614,684 5,787 (5,707) 614,764 Total liabilities 783, (684) 784, (6) 784,593 6,713 (5,707) 785,599 Deferred inflows of resources Deferred gain on debt refunding 11, , , ,668 Net position Net investment in capital assets 138,621 8,870 1, , , , ,382 Restricted Nonexpendable Expendable 7, , , ,848 Unrestricted 724,422 9,518 6, ,553 3,021 (9) - 743,565 30, ,490 Total net position $ 870,758 $ 18,388 $ 8,477 $ - $ 897,623 $ 3,074 $ 4,965 $ - $ 905,662 $ 31,155 $ - $ 936,817 Certain subsidiaries, separately presented in the fiscal 2013 consolidating basic statements, have been combined with other subsidiaries in the fiscal 2014 presentation. 4

5 Shands Teaching Hospital and Clinics, Inc. and Subsidiaries Consolidating Basic Statements of Revenues, Expenses and Changes in Net Position (Unaudited) Year Ended June 30, 2014 (Amounts in Thousands) UF Health UF Health UF Health Total UF Health Total Shands Teaching Shands Shands Psychiatric Shands Rehab Alachua County Shands Property Obligated Hospital and Hospital Hospital Hospital Eliminations Hospital Group Homecare Management Eliminations Group Other Eliminations Clinics, Inc. Operating revenues Net patient service revenue, net of provision for bad debts $ 1,128,856 $ 24,208 $ 17,958 $ (532) $ 1,170,490 $ 6,460 $ - $ - $ 1,176,950 $ - $ - $ 1,176,950 Other operating revenue 18, , (395) 19,779 2,816 (252) 22,343 Total operating revenues 1,147,269 24,982 17,958 (532) 1,189,677 6, (395) 1,196,729 2,816 (252) 1,199,293 Operating expenses Salaries and benefits 512,626 17,268 11,420 1, ,959 4, ,715 1, ,722 Supplies and services 499,813 7,895 4,161 (2,178) 509,691 1, (395) 511,246 1,526 (252) 512,520 Depreciation and amortization 53, , , ,479 Total operating expenses 1,065,957 25,747 15,746 (532) 1,106,918 6, (395) 1,113,440 2,533 (252) 1,115,721 Operating income (loss) 81,312 (765) 2,212-82, , ,572 Nonoperating revenues (expenses) State appropriations 7, , , ,050 Interest expense (20,372) (20,372) (20,372) - - (20,372) Investment income, net 6, , , ,318 Realized gains on investments, net 27, , , ,059 Change in fair value of investments Change in fair value of derivative instruments 3, , , ,132 (Loss) on disposal of assets, net (347) (344) (344) - - (344) Other nonoperating revenues, net 5,526 6 (1) - 5, ,531 (1,624) - 3,907 Total nonoperating revenues, net 28, , ,655 (1,585) - 27,070 Excess (deficit) of revenues over expenses before transfers, capital contributions, and other changes in net position 109,959 (759) 2, , ,944 (1,302) - 110,642 Transfers and expenditures in support of the University of Florida and its medical programs (46,201) (45,412) (45,412) - - (45,412) Transfer of net assets in association with consolidation and support of other operations and divisions of the Corporation (9,462) 1,449 (585) - (8,598) 365 (594) - (8,827) 8, Capital contributions Other changes in net position 523 (1) (31) Increase (decrease) in net position 55,240 1,478 1,630-58, (171) - 58,649 7,494-66,143 Net position Beginning of year 815,518 16,910 6, ,275 2,602 5, ,013 23, ,674 End of year $ 870,758 $ 18,388 $ 8,477 $ - $ 897,623 $ 3,074 $ 4,965 $ - $ 905,662 $ 31,155 $ - $ 936,817 Certain subsidiaries, separately presented in the fiscal 2013 consolidating basic statements, have been combined with other subsidiaries in the fiscal 2014 presentation. 5

6 Shands Teaching Hospital and Clinics, Inc. Obligated Group Summary of Financial and Operational Indicators Years Ended June 30, 2014 and 2013 Utilization Statistics Licensed beds Beds in service Admissions-Routine (excludes newborns) 44,630 41,950 Admissions-Observation Cases 7,850 6,538 Admissions-Combined 52,480 48,488 Patient days-total (excludes newborns) 294, ,610 Average length of stay (days) Percentage occupancy (beds in service) 83.0% 83.0% Emergency room and trauma center visits 745, ,062 Outpatient visits 96,750 81,483 Calendar Days Payor Mix - Gross Revenues Medicare 38.0% 36.8% Medicaid 22.2% 22.0% Blue Cross 16.2% 15.0% Commercial 2.5% 3.3% Managed Care 10.9% 12.3% Self-pay 6.1% 6.4% Other 4.1% 4.2% Total 100.0% 100.0% Other Medicare case mix index for reporting period

7 Shands Teaching Hospital and Clinics, Inc. Obligated Group Debt Covenant Calculations Comparison to Minimum Requirements June 30, 2014 Requirements Master Trust 1996A 2008A 2008C 2010A 2012A&B Bonds 2013A Notes Results Indenture Bonds Bonds Bonds Bonds PNC Note Debt Service Coverage Ratio N/A Cushion Ratio 10.3 N/A 1.5 N/A N/A N/A N/A N/A Total Debt to Capitalization Ratio 39.0% N/A N/A =<65% N/A N/A =<65% N/A Days Cash on Hand N/A N/A =>60 N/A N/A =>60 N/A 7

8 Shands Teaching Hospital and Clinics, Inc. and Subsidiaries Management s Discussion and Analysis (Unaudited) June 30, 2014 and 2013 This section of the Shands Teaching Hospital and Clinics, Inc. and Subsidiaries ( Shands ) annual financial report presents Shands' analysis of its financial performance as of and for the year ended June 30, 2014 with comparative information as of and for the year ended June 30, This discussion has been prepared by management and should be read in conjunction with the consolidated basic financial statements and related note disclosures. Shands is an affiliate of the University of Florida ( UF ) where by statute the President of the University has the right to appoint and remove members of the Shands Board of Directors. Shands controls or owns various affiliated entities that operate facilities and provide services that are part of Shands. In 2013, a branding campaign introduced University of Florida Health or UF Health, which encompasses the UF Health Science Center and the Shands family of hospitals and services. As a result, Shands and certain of its affiliated entities operate under d/b/a s beginning with UF Health. The following identifies the significant affiliates of Shands and their respective primary operations: UF Health Shands Hospital is a major tertiary care teaching institution licensed to operate an 875-bed teaching hospital which provides clinical settings for medical education programs at UF. UF Health Shands Psychiatric Hospital is an inpatient psychiatric and substance abuse facility licensed to operate 81 beds, of which 61 are psychiatric and 20 are substance abuse. UF Health Shands Rehab Hospital is a 40-bed inpatient rehabilitation hospital located on the same campus as UF Health Shands Psychiatric Hospital. Uf Health Shands HomeCare is a hospital-based home care agency providing home care services to the citizens of north central Florida. Property Management leases properties in Gainesville, Florida. Elder Care of Alachua County, Inc. provides social and health care support to the elderly in Alachua County. Southeastern HealthCare Foundation, Inc. provides charitable aid to UF and to Shands and owns and leases various rental properties in Florida. Joint Ventures: Shands has a 40% minority partnership interest with Community Health Systems, Inc. ( CHS ) in Lake Shore HMA, LLC, Starke HMA, LLC, and Live Oak HMA, LLC for three rural community hospitals (Shands Lake Shore located in Lake City, Florida; Shands Starke located in Starke, Florida; and Shands Live Oak located in Live Oak, Florida). CHS manages the operations of the three facilities. Prior to January 27, 2014 the partnership interest was with Health Management Associates, Inc. ( HMA ). On January 27, 2014 CHS acquired all of HMA s issued and outstanding stock. However, the LLCs continue under the original name. In April, 2014, Shands acquired a 5% minority partnership interest with CHS in Munroe Regional Medical Center located in Ocala, Florida. CHS manages the operations of the facility. Shands has an equal partnership interest with Solantic, LLC (d/b/a Care Spot ) in a walk-in urgent care center located in Gainesville, Florida. Care Spot manages the operations of the facility. Shands and the University of Florida Development Corporation ( UFDC ) are partners in Innovation Square, LLC. 1

9 Situated between the UF campus and downtown Gainesville, Innovation Square is a planned mixed-use research neighborhood that advances the national and global profile of UF with Shands and the local biotech industry. Shands financial interest results from assets transferred to the LLC, net of amounts received from UFDC representing their partnership interest. Previously, Shands had a partnership interest based upon membership levels with Shands Jacksonville Medical Center, Inc. ( SJMC ), a related party controlled by UF, in First Coast Advantage, LLC ( FCA ) which is a provider service network ( PSN ) established to provide services to Medicaid qualified individuals in certain regions of the state, as designated by the Agency for Health Care Administration ( AHCA ), the administrator of the Medicaid program in the State of Florida. In March 2013, FCA submitted a bid to AHCA to serve two (Regions 3 and 4) of the eleven regions under the Statewide Medicaid Managed Care Program. In September, AHCA announced its selections, which included FCA. However, FCA was only successful in its bid for Region 4, which is served by SJMC, and was not awarded Region 3, which is served by Shands. Consequently, Shands has dissolved its interest in FCA and has recorded an impairment charge of $0.3 million, reflected in other nonoperating revenues, net in the accompanying consolidated basic statement of revenues, expenses and changes in net position (unaudited) for the year ended June 30, Shands has been reimbursed for the proposal submission fee of $1.6 million, previously recorded as a receivable at June 30, Any remaining amounts involving FCA are immaterial. Required Financial Statements The required statements are the consolidated statements of net position, the consolidated statements of revenues, expenses and changes in net position and the consolidated statements of cash flows. These statements offer short and long-term financial information about Shands activities. The consolidated statements of net position reflect all of Shands assets, liabilities, deferred inflows and outflows and provide information about the nature and amounts of investments in resources (assets) and the obligations to creditors (liabilities). Assets, liabilities and deferred activity are presented in a classified format, which distinguishes between their current and long-term time frame. The difference between the assets plus deferred outflows and liabilities plus deferred inflows is reported as net position. The consolidated statements of revenues, expenses and changes in net position present the change in net position resulting from revenues earned and expenses incurred. All changes in net position are reported as revenues are earned and expenses are incurred, regardless of the timing of related cash flows. The consolidated statements of cash flows report cash receipts, cash payments, and net changes in cash resulting from operating, financing (capital and non-capital), and investing activities. The purpose of the statements is to reflect the key sources and uses of cash during the reporting period. 2

10 Financial Analysis of Shands Statements of Net Position The condensed consolidated basic statements of net position present the financial position of Shands and include all assets, liabilities and deferred inflows and outflows. Changes in net position are an indicator of whether the overall financial condition of the organization has improved or worsened over a period of time. They also provide the basis for evaluating the capital structure, as well as assessing the liquidity and financial flexibility. However, the financial statement user should consider other nonfinancial factors, such as changes in economic conditions, population change, regulations, and government legislation affecting the health care industry. The following table presents Shands condensed consolidated basic statements of net position as of June 30, 2014 and 2013: (in thousands of dollars) Cash and cash equivalents and short-term investments $ 136,716 $ 156,506 Other current assets 277, ,382 Capital assets, net 728, ,648 Other assets 548, ,640 Total assets 1,691,401 1,651,176 Deferred outflows of resources 42,683 40,190 Current liabilities 170, ,580 Long-term liabilities 614, ,534 Total liabilities 785, ,114 Deferred inflows of resources 11,668 12,578 Net position Net investment in capital assets 154, ,754 Restricted Nonexpendable Expendable 7,848 7,357 Unrestricted 774, ,466 Total net position $ 936,817 $ 870,674 In 2014, Cash and cash equivalents and short-term investments decreased by $19.8 million or 12.6%. Cash generated from operations was $126.6 million. Other sources of cash included the release of $21.0 million in funds internally designated for capital projects. Cash uses included payments of $47.8 million in support of UF and its medical programs, purchase of capital assets of $73.6 million, principal and interest payments of $43.9 million on outstanding debt (including capital lease obligations), and payment of $10.0 million to acquire a minority partnership interest. 3

11 Other current assets, including net patient accounts receivable, inventories, prepaid expenses and other current assets, and assets whose use is restricted, current portion decreased by $2.6 million or 0.9% in Assets whose use is restricted, current portion, decreased by $20.4 million as project funds were released for capital and other strategic purposes. Partially offsetting this decrease was an increase in accounts receivable, net, of $14.5 million. This increase in receivables was due to two factors: (1) increases in net patient service revenue and (2) the conversion to a new patient financial system in July, In the early stages of a system conversion, accounts receivable levels tend to increase as improved work flows are implemented. Net accounts receivable has decreased in recent months due to increased collections and a reduction in receivable days outstanding. Also, prepaid expenses and other current assets increased by $3.0 million primarily due to the payment of AHCA assessments. Capital assets, net, increased by $23.0 million or 3.3% in 2014 reflecting purchases of $73.6 million, noncash additions of $3.6 million and an increase in retainage payable of $0.7 million, partially offset by depreciation and amortization of $54.5 million and disposal of assets of $0.3 million. Capital asset additions include land purchases of $1.9 million, building renovations of $35.0 million, and equipment purchases of $36.7 million. Equipment acquisitions include $10.6 million for a replacement helicopter and $5.7 million for implementation costs related to the electronic medical records (EMR) system. Other assets increased in 2014 by $39.7 million or 7.8%, primarily due to Shands funding its definedbenefit plan in excess of pension expense by $18.1 million. Other activity included a $10.0 million acquisition of a minority partnership interest. Assets whose use is restricted, non-current portion increased by $16.6 million due to positive returns on Shands investment portfolio. Deferred outflows of resources increased in 2014 by $2.5 million or 6.2% due to a deterioration in the fair value of the hedged interest rate swaps. Current liabilities decreased in 2014 by $7.7 million or 4.3% due to a decrease of $14.6 million in thirdparty settlement liabilities, partially offset by increases of $3.7 million in accounts payable and accrued expenses and $3.4 million in accrued salaries and leave payable. The decrease in third-party settlement liabilities is largely due to legal settlement payments totaling $21.5 million (see page 7). Long-term liabilities decreased in 2014 by $14.8 million or 2.3% primarily due to $19.6 million in principal payments for the long-term portion of debt, partially offset by an increase in other long-term liabilities of $4.5 million. Deferred inflows of resources decreased in 2014 by $0.9 million or 7.2% due to amortization of deferred gains on debt refunding. Total net position increased in 2014 by $66.1 million or 7.6%. The increase was due to favorable operating performance. Statements of Revenues, Expenses and Changes in Net Position The following table presents Shands condensed consolidated basic statements of revenues, expenses and changes in net position for the years ended June 30, 2014 and 2013: 4

12 (in thousands of dollars) Net patient service revenue $ 1,176,950 $ 1,143,193 Other operating revenue 22,343 17,043 Total operating revenues 1,199,293 1,160,236 Operating expenses 1,115,721 1,041,801 Operating income 83, ,435 Nonoperating revenues, net 27,070 7,104 Excess of revenues over expenses 110, ,539 Other changes in net position Transfers and expenditures in support of the University of Florida and its medical programs (45,412) (47,812) Other transfers, net - (6,100) Capital contributions Other changes in net position 492 (1,394) Increase in net position 66,143 71,178 Net position Beginning balance 870, ,496 Ending balance $ 936,817 $ 870,674 Operating Revenues For the year ended June 30, 2014 total operating revenues increased by $39.1 million or 3.4% compared to the year ended June 30, In 2014, net patient service revenue increased by $33.8 million or 3.0% reflecting continued increases in patient acuity, increases in admissions of 8.2% and outpatient visits of 5.0%, and modest rate increases from non-governmental payors, partially offset by an increase in bad debt expense of $7.6 million, an increase in observation cases, which yields lower reimbursement, and the full year impact of Medicare sequestration. In addition, in 2014 AHCA converted the Medicaid inpatient payment methodology from a per diem reimbursement system to a per case model. Based on data published by AHCA, the change in methodology is projected to reduce year over year reimbursement by approximately $27.3 million. For the years ended June 30, 2014 and 2013, changes in prior year estimated third-party payer settlements increased net patient service revenue by $7.3 million and $24.2 million, respectively. Other operating revenues increased in 2014 by $5.3 million or 31.1%. The increase in other operating revenue is largely due to funding from Medicare and Medicaid totaling $2.4 million for meeting additional meaningful use benchmarks associated with implementation of the EMR system. Also contributing to the increase is a contract pharmacy arrangement in which Shands contracts with outside pharmacies to provide pharmacy services. This activity is new for Shands in 2014 and has yielded revenue of $1.7 million. Lastly, reimbursement for harvested organs increased by $1.0 million. Operating Expenses Operating expenses increased in 2014 by $73.9 million or 7.1%. Salaries and benefits increased by $43.4 million or 8.6% reflecting increases in staffing levels, wage increases, health benefits and pension expense. Supplies and services increased by $25.4 million or 5.2% resulting from the increased patient volume as well as cost increases associated with improved clinical technologies, pharmaceutical supplies and certain purchased services. Depreciation and amortization increased by $5.1 million or 10.4%. 5

13 Nonoperating Revenues, net Nonoperating revenues, net increased in 2014 by $20.0 million or 281.1%. Included in this category is investment performance and fair value changes on nonhedging interest rate swaps, which can vary significantly from year to year, and interest expense (due to Governmental Accounting Standards Board reporting requirements). Realized capital gains increased by $22.1 million due to favorable results in the financial markets and Shands investment portfolio. The fair value of derivative instruments improved by $6.6 million. Interest expense increased by $3.3 million, largely resulting from the $125.0 million Series 2013A Taxable Notes issued in March, Patient Volumes The following tables present the associated volumes of each facility on a comparative basis for the years ended June 30, 2014 and Net % Change Change Inpatient Admissions (1) UF Health Shands Hospital 48,381 44,737 3, % UF Health Shands Psychiatric Hospital 3,195 2, % UF Health Shands Rehab Hospital % Total 52,480 48,488 3, % Net % Change Change Outpatient Visits (2) UF Health Shands Hospital 814, ,510 38, % UF Health Shands Psychiatric Hospital 27,922 26,803 1, % UF Health Shands Rehab Hospital % Total 842, ,545 39, % (1) Includes observation cases (2) Includes emergency room and trauma visits For the year ended June 30, 2014 inpatient admissions increased by 8.2% compared to the year ended June 30, Outpatient visits increased by 5.0%. Statements of Cash Flows The consolidated basic statements of cash flows provide additional information in regards to Shands financial results by reporting the major sources and uses of cash. For the year ended June 30, 2014, cash and cash equivalents and short-term investments decreased by $19.8 million or 12.6%. Cash inflows were primarily a result of net cash provided by operating activities of $126.6 million as well as the release of $21.0 million in funds to reimburse operating cash for capital spending. Cash out-flows included payments of $47.8 million in support of UF and its medical programs, payments for acquisition of capital assets of $73.6 million, principal and interest payments of $43.9 million on outstanding debt, and payment of $10.0 million to acquire a minority partnership interest. Shands also funded the defined benefit pension plan by $18.1 million in excess of pension expense as management proactively works 6

14 toward improving the plan s funded status. At June 30, 2014, the funded status is 75.3%, up from 70.0% as of June 30, Debt Outstanding As of June 30, 2014, Shands had approximately $572.9 million in debt outstanding compared to approximately $592.7 million at June 30, Long-term debt is comprised of tax exempt bond issues, taxable notes, and installment debt. In fiscal year 2014, Shands increased its borrowings under an installment debt agreement by $2.7 million to finance a portion of the costs of an EMR system implementation. Shands utilizes interest rate swaps in order to synthetically convert certain variable rate bonds to fixed rate bonds. Including the effect of the interest rate swaps, approximately 77% of Shands bonds and notes outstanding are fixed while 23% are variable. The Series 1996A Bonds are fixed rate bonds insured by MBIA. The Series 2007A and Series 2007B Bonds, Series 2008A Bonds, and the Series 2008C Bonds are variable rate bonds with fixed rate payor interest rate swaps which synthetically convert them to fixed rate bonds. The Series 2008D1 and Series 2008D2 bonds are fixed rate bonds. The Series 2010B Bonds are unenhanced fixed rate bonds. The Series 2010A Bonds and the Series 2012A and Series 2012B Bonds are variable rate bonds. The Series 2013A Taxable Notes and the 2012 Bank Note are taxable fixed rate notes. Remote Emergency Department In August 2013, Shands opened its remote, full-service, 24/7 emergency department. Located in the northwest section of Gainesville, the UF Health Shands Emergency Center Springhill is housed in a completely renovated 8,500-square-foot building, retrofitted to include all of the technology and diagnostic resources necessary for emergency care. Total project cost amounted to $4.6 million. The Center is staffed entirely by board-certified and board-eligible UF Health emergency medicine physicians and experienced emergency medicine nurses. The 911-receiving center is equipped with ten treatment spaces for patients, an onsite lab and diagnostic radiology services including X-ray and CT imaging systems. A permanently stationed ShandsCair ambulance transfers patients requiring hospitalization to UF Health Shands Hospital. For the year ended June 30, 2014, emergency and trauma visits totaled 96,750, an increase of 15,267 or 18.7% compared to the year ended June 30, Since opening, visit volume at the Center amounted to 13,195, accounting for 86.4% of the year-over-year volume increase. Legal Settlement Shands paid $21.5 million ($19.4 million in July 2013 and $2.1 million in June 2014) to resolve allegations made under the False Claims Act that billing practices at Shands hospitals resulted in overpayments by Medicare and Medicaid covering fiscal years 2003 through The settlement resulted from a whistleblower lawsuit filed in the U.S. District Court - Middle District Court of Florida - Jacksonville Division on April 30, 2008, which had been under court seal. The whistleblower was an independent consultant hired by Shands in 2006 and 2007 to conduct a routine audit of its billing practices. The audit showed inconsistent billing practices. In some instances, Shands billed Medicare and Medicaid for short overnight inpatient admissions rather than for outpatient or observation services. Shands officials fully cooperated with the state and federal investigation and negotiated the settlement agreement. While there has been no admission of liability, Shands paid $20.8 million to the Medicare program and $0.7 million to the State of Florida under its Medicaid program. Payment of this settlement amount did not have a material impact on Shands net position, key financial metrics or results of operations. 7

15 Credit Ratings Shands has received underlying credit ratings of A2 with a Stable outlook from Moody s Investor Services and A with a Stable outlook from Standard & Poor s on all of its rated debt. Standard & Poor s credit rating was affirmed in April 2014 and Moody s credit rating was affirmed in February